More freight is being pushed to contract carriers, out of spot market.

Originally printed in the May 2023 issue of Produce Business.

Produce transportation has faced a sequence of challenges since the COVID-19 pandemic, with labor and fuel prices among the difficulties that have rattled the sector and have yet to fully resolve themselves.

Fuel prices, while past peak, remain high and have recently sparked shortable concerns. Labor still is in short supply, and competition for truckers has become so intense that Walmart initiated a program that allows any of its workers to apply for driver training.

Companies that purchased equipment, often at inflated prices, and entered the spot market during the period of trucking shortage a couple of years ago have been consolidating or even pulling up stakes.

Recently, Bob Costello, chief economist at the American Trucking Association (ATA), Washington, D.C., says tonnage in the contract market had been gaining at a nice clip, as market shifts occur.

“I suspect some of the gain is attributable to capacity coming out of the network, especially carriers that primarily operate in the spot market and/or bought expensive used equipment in the last couple of years. This would push more freight to contract carriers.”

As part of the ATA’s trucking assessment for February 2023, the latest published, Costello pointed to gains in the organization’s For-Hire Truck Tonnage Index, which is dominated by contract, as opposed to spot market freight.

“Tonnage has increased sequentially for the last three months, totaling 2.9%. As a result, the index is just 0.3% below the recent high in September,” says Costello. “The fact that our index is growing sequentially and on a year-over-year basis demonstrates that contract freight continues to hold up at high levels,” he says.

ATA’s advanced seasonally adjusted For-Hire Truck Tonnage Index rose 1.2% in February after gaining 0.6% in January. In February, the index equaled 118.4, and 117 in January, with 100 equaling 2015 tonnage.

“Looking ahead, we continue to see evidence the inventory cycle is improving, which means bloated stocks will stop being a headwind and eventually help truck freight volumes,” Costello points out. “Increased infrastructure spending will also boost volumes heading into the summer months.

CAPACITY A GROWING CONCERN

Fred Plotsky, president, Cool Runnings, Kenosha, WI, said a critical concern of the produce transportation sector is emerging at the grower level.

“The biggest issue is crop availability, which leads, in turn, to freight rates,” he says. “It’s getting so cutthroat that trucks are operating at a loss, but not so great a loss that it is better to park a truck. But I’ve seen trucking companies go out of business that I never thought would.”

Trucking companies that began at the height of the freight rates pushed to peaks by driver shortages and other pandemic-related factors are particularly susceptible to failure, Plotsky points out, given they spent too much on equipment and developed business models based on freight rates that have come down significantly.

Now, he says, external factors such as the weather situation in California (and which crops might be pressured by the heavy rainfall), and shrinking demand in an economy that is simultaneously experiencing a tight labor market, inflation and a slowing growth, will have an unforeseen impact on the produce transportation market.

TransLoop, Chicago, founded in 2019, is among an emerging group of tech-driven logistics companies. And TransLoop Director of Sales Chris Sujka agrees that capacity is falling. He points to low current freight rates and high insurance as contributing factors to owner-operators facing fading profits and even parking their trucks. Still, conditions in the western United States weigh on his mind.

“One of our biggest concerns is how capacity will be affected with the delayed start in Salinas Valley (CA),” he says. “Will trucks stay in Arizona longer? Will they move elsewhere? We want to strategically set up our carriers to be successful, along with supporting our partners.”

Although his company is part of the business that’s bringing new technology to the produce transportation marketplace, Syed Aman, co-founder and chief executive of HWY Haul, Santa Clara, CA, says the current marketplace has been subject to four years of unprecedented turmoil and has yet to reach an equilibrium. His tech-powered digital brokerage, founded in 2018, uses its proprietary platform to link shippers and receivers, Aman says, and is prepared to confront the challenges that come with its core businesses of moving perishable products.

“We’re rolling with the punches,” he says.

Evan Kazan, vice president at Target Interstate Systems, Bronx, NY, agrees the immediate outlook for the produce transportation isn’t clear, but that freight rates may be subject to some immediate volatility.

“Traditionally, during transition from southern California to northern California, product availability is short since neither region is in full swing,” he says. “It also causes rises in freight rates because the consolidation of trucks also gets spread out, and usually there are not enough trucks in either areas to fulfill demand. In addition, the customers need to add more pickups in varying areas to put together full truckloads, also increasing rates.”

Kazan says the heavy rains and weather in California could change that transition as well as create a gap for the start of the summer season. “If that happens, one benefit for truckers is, when volume is down, and product is expensive, things largely go truck instead of rail.”

Otherwise he says, the availability of trucks had been plentiful for the six-month period through March, with only occasional pockets of tight capacity.

“The last several months have seen excess capacity compared to volume, but freight rates plateaued,” Kazan says. “There is a floor that, no matter what the supply/demand, trucks simply cannot go below, and we hit that point during the winter.”

Mark Petersen, vice president, Refrigerated Services, at C.H. Robinson, Eden Prairie, MN, identifies consumer response to the economy as another factor creating market unpredictability.

“We are seeing buying patterns continue to change, causing disruption to distribution patterns, which put regular networks out of sync,” he says.

“In terms of inflation, this has impacted just about everyone, and, unsurprisingly, it has had an impact on where consumers choose to spend their money,” Petersen adds. “Despite inflationary factors, we have seen that consumers are purchasing more fresh products and fewer canned and frozen options.”

CHANGING APPROACHES

Petersen says, at the same time, economic and weather factors have stirred the pot, and the development of the market, especially in terms of how clients and suppliers communicate in their transactions, has changed tremendously with the advancements of digitally enabled technology, plus the rapid acceptance of the remote work environment. “These dynamics have changed and enhanced the way we manage relationships, and, in many ways, has increased communication by making people more accessible.”

“In the past few years, we have focused on developing products and technology tailored for our customers: from the largest shippers in the world to small businesses that may need to book shipments as small as a pound,” he adds. “When our research revealed that customers’ three greatest pain points were capacity, sustainability and market volatility, we created industry-first technology to solve for all three.”

HWY Haul’s Aman says a new generation of operators is emerging, one that looks at technology as a critical driver of communications and efficiency. As such, they rely less on traditionally maintained relationships in doing business and more on electronically driven methods. HWY Haul operates a platform that allows customers to quickly make arrangements at a guaranteed price, while offering all-around tracking.

Petersen says that, no matter what the cause, efficiency is important today because it’s going to weigh against inevitable cost pressures and promote customer satisfaction.

“Every bit of efficiency matters,” he says. “That’s especially true for the nearly 90% of trucking firms in North America that have five trucks or less, many of them owner-operators with a single truck.”

“Quickly finding freight and having a seamless digital experience, from offer to booking to in-transit updates to getting paid, allows carriers to optimize their businesses,” he adds. “That, in turn, optimizes trucking capacity for our shippers. We enable our carriers to operate in a fully digital fashion, providing access to the most loads in North America and technology to help run their business.”

The nitty-gritty of transportation, such as the price of fuel, can’t be avoided, but improved practices will help make such costs more bearable while improving customer service and maintaining business ties.

“While going down in cost per gallon, diesel prices are still quite high,” Petersen says. “This has had the greatest impact on smaller carriers, which are the majority of trucking companies. Typically, they can feel greater impact from less freight in the spot market and thus incur more empty, non-revenue generating miles.”

HELP WANTED

Labor still is an issue the transportation sector has to deal with, one that has an ongoing effect, not only on finding drivers but even scheduling.

“Scheduling is difficult, although not as bad,” Cool Runnings’ Plotsky says. “But they don’t have the help. Labor is an issue with scheduling. Warehouse work is difficult.”

TransLoop has taken its own steps in dealing with labor issues.

“We have worked to utilize drop trailers with our shipping partners to allow them to unload trucks on their own time without the added expense of detention,” Sujka says.

Although it is tech-driven, Sujka says part of getting technology right is circling back to what many in the produce transportation sector have said was absolutely vital to getting through the COVID-19 pandemic: relationships. Although technology may change how they are built, relationships based on trust and reliability are still important to the produce transportation business.

“Relationships/partnerships are vital,” Sujka says. “We do not want to be transactional, but work together to find solutions, as we look to have these relationships withstand the test of time.”

• • •

Transition to technology needs to be emphasized in C-suite

The future of the transportation system, and especially that part dealing with perishable food, is technology, or integration through platforms that can unify communications, operations and monitoring, while getting freight to its destination on time.

That’s the vision of Syed Aman, co-founder and chief executive of HWY Haul, Santa Clara, CA, who spent several years working on technology at Walmart, before he co-founded the business.

Aman adds, though, that the adoption of new technology across such a complex function as logistics isn’t likely to come from the people who are busy completing the day-to-day tasks of moving goods. Rather, change is going to come from the involvement of the C-suite as leadership modernizes.

“We need to start from the top down when the executives, including the CFOs and CIOs, get involved,” Syed says. “When they send the word to their teams, that will be the opportunity.”

Aman adds current conditions create a time when businesses should be a bit cautious, but also reassess and prepare for a near future when economic conditions improve.

For HWY Haul, built on technology, he says five elements are critical for the business now and into the future as it scales up operations: connected, automated, intelligent, low cost and sustainable.

At the same time, however, the technology and operations efficiencies serve a specific purpose for customers — to get freight where it’s going on time.

“That’s what they’re looking for,” he says.